Q&A Hero

Q: The financial statements of Midwest Tours are given below. Note: The common shares are trading in the stock market for $36 each. Refer to the financial statements of Midwest Tours. The firm's times interest earned ratio for 2009 is A. 2.897. B. 2.719. C. 3.375. D. 3.462.

Q: The financial statements of Midwest Tours are given below. Note: The common shares are trading in the stock market for $36 each. Refer to the financial statements of Midwest Tours. The firm's leverage ratio for 2009 is A. 1.62. B. 1.56. C. 2.00. D. 2.42. E. 2.17.

Q: The financial statements of Midwest Tours are given below. Note: The common shares are trading in the stock market for $36 each. Refer to the financial statements of Midwest Tours. The firm's quick ratio for 2009 is A. 1.71. B. 0.78. C. 0.85. D. 1.56.

Q: The financial statements of Midwest Tours are given below. Note: The common shares are trading in the stock market for $36 each. Refer to the financial statements of Midwest Tours. The firm's current ratio for 2009 is A. 1.82. B. 1.03. C. 1.30. D. 1.65. E. None of the options are correct.

Q: One problem with comparing financial ratios prepared by different reporting agencies is A. some agencies receive financial information later than others. B. agencies vary in their policies as to what is included in specific calculations. C. some agencies are careless in their reporting. D. some firms are more conservative in their accounting practices. E. None of the options are correct.

Q: Comparability problems arise because A. firms may use different generally accepted accounting principles. B. inflation may affect firms differently due to accounting conventions used. C. financial analysts do not know how to compare financial statements. D. firms may use different generally accepted accounting principles, and inflation may affect firms differently due to accounting conventions used. E. firms may use different generally accepted accounting principles, and financial analysts do not know how to compare financial statements.

Q: __________ best explains a ratio of sales/average net fixed assets that exceeds the industry average. A. The firm expanded plant and equipment in the past few years B. The firm makes less efficient use of assets than competing firms C. The firm has a substantial amount of old plant and equipment D. The firm uses straight-line depreciation

Q: What best explains why a firm's ratio of long-term debt/total capital is lower than the industry average, while the ratio of income before interest and taxes/debt interest charges is higher than the industry average? A. The firm pays lower interest on long-term debt than the average firm. B. The firm has more short-term debt than average. C. The firm has a high ratio of current assets/current liabilities. D. The firm has a high ratio of total cash flow/long term debt. E. None of the options are correct.

Q: Which of the following would best explain a situation where the ratio of net income/total equity of a firm is higher than the industry average, while the ratio of net income/total assets is lower than the industry average? A. The firm's net profit margin is higher than the industry average. B. The firm's asset turnover is higher than the industry average. C. The firm's equity multiplier must be lower than the industry average. D. The firm's debt ratio is higher than the industry averagE. E. None of the options are correct.

Q: The level of real income of a firm can be distorted by the reporting of depreciation and interest expense. During periods of high inflation, the level of reported depreciation tends to __________ income, and the level of interest expense reported tends to __________ income. A. understate; overstate B. understate; understate C. overstate; understate D. overstate; overstate E. There is no discernible pattern.

Q: __________ is a false statement. A. During periods of inflation, LIFO makes the balance sheet less representative of the actual inventory values than if FIFO were used B. During periods of inflation, FIFO makes the balance sheet less representative of actual inventory values than if LIFO were used C. During periods of inflation, LIFO overstates earnings relative to FIFO D. During periods of inflation, FIFO makes the balance sheet less representative of actual inventory values than . if LIFO were used, and LIFO overstates earnings relative to FIFO E. None of the options are correct.

Q: __________ is a true statement. A. During periods of inflation, LIFO makes the balance sheet less representative of the actual inventory values than if FIFO were used B. During periods of inflation, FIFO makes the balance sheet less representative of actual inventory values than if LIFO were used C. After inflation ends, distortion due to LIFO will disappear as inventory is sold D. During periods of inflation, LIFO overstates earnings relative to FIFO

Q: Fundamental analysis uses A. earnings and dividends prospects. B. relative strength. C. price momentum. D. earnings, dividend prospects, and relative strength. E. earnings, dividend prospects, and price momentum.

Q: Assuming continued inflation, a firm that uses LIFO will tend to have a(n) ________current ratio than a firm using FIFO, and the difference will tend to __________ as time passes. A. higher; increase B. higher; decrease C. lower; decrease D. lower; increase E. identical; remain the same

Q: Ferris Corp. wants to increase its current ratio from the present level of 1.5 when it closes the books next week. The action of __________ will have the desired effect. A. payment of current payables from cash B. sales of current marketable securities for cash C. write-down of impaired assets D. delay of next payroll E. None of the options are correct.

Q: Which of the following ratios gives information on the amount of profits reinvested in the firm over the years? A. Sales/total assets B. Debt/total assets C. Debt/equity D. Retained earnings/total assets

Q: A firm's current ratio is above the industry average. However, the firm's quick ratio is below the industry average. These ratios suggest that the firm A. has relatively more total current assets and even more inventory than other firms in the industry. B. is very efficient at managing inventories. C. has liquidity that is superior to the average firm in the industry. D. is near technical insolvency.

Q: FOX Company has a ratio of (total debt/total assets) that is above the industry average, and a ratio of (long term debt/equity) that is below the industry average. These ratios suggest that the firm A. utilizes assets effectively. B. has too much equity in the capital structure. C. has relatively high current liabilities. D. has a relatively low dividend-payout ratio. E. None of the options are correct.

Q: Return on total assets is the product of A. interest rates and pre-tax profits. B. the debt-equity ratio and P/E ratio. C. the after-tax profit margin and the asset turnover ratio. D. sales and fixed assets. E. None of the options are correct.

Q: During periods of inflation, the use of FIFO (rather than LIFO) as the method of accounting for inventories causes A. higher reported sales. B. higher incomes taxes. C. lower ending inventory. D. higher incomes taxes and lower ending inventory. E. None of the options are correct.

Q: A measure of asset utilization is A. sales divided by working capital. B. return on total assets. C. return on equity capital. D. operating profit divided by sales. E. None of the options are correct.

Q: A firm has a (net profit/pretax profit) ratio of 0.6, a leverage ratio of 2, a (pretax profit/EBIT) of 0.6, an asset turnover ratio of 2.5, a current ratio of 1.5, and a return on sales ratio of 4%. The firm's ROE is A. 4.2%. B. 5.2%. C. 6.2%. D. 7.2%. E. None of the options are correct.

Q: A firm has an ROE of 2%, a debt/equity ratio of 1.0, a tax rate of 0%, and an interest rate on debt of 10%. The firm's ROA is A. 2%. B. 4%. C. 6%. D. 8%. E. None of the options are correct.

Q: A firm has an ROA of 14%, a debt/equity ratio of 0.8, a tax rate of 35%, and the interest rate on the debt is 10%. The firm's ROE is A. 11.18%. B. 8.97%. C. 11.54%. D. 12.62%.

Q: A firm has a net profit/pretax profit ratio of 0.625, a leverage ratio of 1.2, a pretax profit/EBIT of 0.9, an ROE of 17.82%, a current ratio of 8, and a return on sales ratio of 8%. The firm's asset turnover is A. 0.3. B. 1.3. C. 2.3. D. 3.3.

Q: The financial statements of Black Barn Company are given below. Note: The common shares are trading in the stock market for $40 each. Refer to the financial statements of Black Barn Company. The firm's market-to-book value for 2009 is A. 1.13. B. 1.62. C. 1.00. D. 1.26.

Q: The financial statements of Black Barn Company are given below. Note: The common shares are trading in the stock market for $40 each. Refer to the financial statements of Black Barn Company. The firm's P/E ratio for 2009 is A. 8.88. B. 7.63. C. 7.88. D. 7.32.

Q: The financial statements of Black Barn Company are given below. Note: The common shares are trading in the stock market for $40 each. Refer to the financial statements of Black Barn Company. The firm's return on equity ratio for 2009 is A. 16.88%. B. 15.63%. C. 14.00%. D. 15.00%. E. 16.24%.

Q: The financial statements of Black Barn Company are given below. Note: The common shares are trading in the stock market for $40 each. Refer to the financial statements of Black Barn Company. The firm's return on sales ratio for 2009 is A. 15.5%. B. 14.6%. C. 14.0%. D. 15.0%. E. 16.5%.

Q: The financial statements of Black Barn Company are given below. Note: The common shares are trading in the stock market for $40 each. Refer to the financial statements of Black Barn Company. The firm's asset turnover ratio for 2009 is A. 1.79. B. 1.63. C. 1.34. D. 2.58. E. None of the options are correct.

Q: The financial statements of Black Barn Company are given below. Note: The common shares are trading in the stock market for $40 each. Refer to the financial statements of Black Barn Company. The firm's fixed asset turnover ratio for 2009 is A. 2.04. B. 2.58. C. 2.97. D. 1.58. E. None of the options are correct.

Q: The financial statements of Black Barn Company are given below. Note: The common shares are trading in the stock market for $40 each. Refer to the financial statements of Black Barn Company. The firm's inventory turnover ratio for 2009 is A. 3.15. B. 3.63. C. 3.69. D. 2.58. E. 4.20.

Q: The financial statements of Black Barn Company are given below. Note: The common shares are trading in the stock market for $40 each. Refer to the financial statements of Black Barn Company. The firm's average collection period for 2009 is A. 59.31. B. 55.05. C. 61.31. D. 49.05. E. None of the options are correct.

Q: The financial statements of Black Barn Company are given below. Note: The common shares are trading in the stock market for $40 each. Refer to the financial statements of Black Barn Company. The firm's times interest earned ratio for 2009 is A. 8.86. B. 7.17. C. 9.66. D. 6.86. E. None of the options are correct. $1,240,000/$140,000 = 8.86.

Q: The financial statements of Black Barn Company are given below. Note: The common shares are trading in the stock market for $40 each. Refer to the financial statements of Black Barn Company. The firm's leverage ratio for 2009 is A. 1.65. B. 1.89. C. 2.64. D. 1.31. E. 1.56.

Q: The financial statements of Black Barn Company are given below. Note: The common shares are trading in the stock market for $40 each. Refer to the financial statements of Black Barn Company. The firm's quick ratio for 2009 is A. 1.69. B. 1.52. C. 1.23. D. 1.07. E. 1.00.

Q: The financial statements of Black Barn Company are given below. Note: The common shares are trading in the stock market for $40 each. Refer to the financial statements of Black Barn Company. The firm's current ratio for 2009 is A. 2.31. B.1.87. C. 2.22. D. 2.46.

Q: A firm has a P/E ratio of 12, an ROE of 13%, and a market-to-book value of A. 0.64. B. 0.92. C. 1.08. D. 1.56.

Q: If a firm has a positive tax rate, a positive ROA, and the interest rate on debt is the same as ROA, then ROA will be A. greater than the ROE. B. equal to the ROE. C. less than the ROE. D. greater than zero, but it is impossible to determine how ROA will compare to ROE. E. negative in all cases.

Q: In periods of inflation, accounting depreciation is __________ relative to replacement cost, and real economic income is________. A. overstated; overstated B. overstated; understated C. understated; overstated D. understated; understated E. correctly stated; correctly stated

Q: A firm has a market to book value ratio that is equivalent to the industry average and an ROE that is less than the industry average, which implies A. the firm has a higher P/E ratio than other firms in the industry. B. the firm is more likely to avoid insolvency in the short run than other firms in the industry. C. the firm is more profitable than other firms in the industry. D. the firm is utilizing its assets more efficiently than other firms in the industry.

Q: If the interest rate on debt is lower than ROA, then a firm will __________ by increasing the use of debt in the capital structurE. A. increase the ROE B. not change the ROE C. decrease the ROE D. change the ROE in an indeterminable manner

Q: If the interest rate on debt is higher than ROA, a firm will __________ by increasing the use of debt in the capital structure. A. increase the ROE B. not change the ROE C. decrease the ROE D. change the ROE in an indeterminable manner

Q: A study by Speidell and Bavishi (1992) found that when accounting statements of foreign firms were restated on a common accounting basis, A. the original and restated P/E ratios were quite similar. B. the original and restated P/E ratios varied considerably. C. most variation was explained by tax differences. D. most firms were consistent in their treatment of goodwill.

Q: Over a period of 30 years or so, in managing investment funds, Benjamin Graham used the approach of investing in the stocks of companies where the stocks were trading at less than their working capital value. The average return from using this strategy was approximately A. 5%. B. 10%. C. 15%. D. 20%. E. None of the options are correct.

Q: __________ is a summary of the profitability of the firm over a period of time, such as a year. A. The balance sheet B. The income statement C. The statement of cash flows D. The audit report E. None of the options are correct.

Q: If you wish to compute economic earnings and are trying to decide how to account for inventory, A. FIFO is better than LIFO. B. LIFO is better than FIFO. C. FIFO and LIFO are equally good. D. FIFO and LIFO are equally bad. E. None of the options are correct.

Q: A firm has a lower asset turnover ratio than the industry average, which implies A. the firm has a lower P/E ratio than other firms in the industry. B. the firm is less likely to avoid insolvency in the short run than other firms in the industry. C. the firm is less profitable than other firms in the industry. D. the firm is utilizing assets less efficiently than other firms in the industry. E. the firm has lower spending on new fixed assets than other firms in the industry.

Q: A firm has a higher asset turnover ratio than the industry average, which implies A. the firm has a higher P/E ratio than other firms in the industry. B. the firm is more likely to avoid insolvency in the short run than other firms in the industry. C. the firm is more profitable than other firms in the industry. D. the firm is utilizing assets more efficiently than other firms in the industry. E. the firm has higher spending on new fixed assets than other firms in the industry.

Q: __________ is a report of the cash flow generated by the firm's operations, investments, and financial activities. A. The balance sheet B. The income statement C. The statement of cash flows D. The auditor's statement of financial condition E. None of the options are correct.

Q: __________ provides a snapshot of the financial condition of the firm at a particular time. A. The balance sheet B. The income statement C. The statement of cash flows D. All of the options are correct. E. None of the options are correct.

Q: An example of a liquidity ratio is A. fixed asset turnover. B. current ratio. C. acid test or quick ratio. D. fixed asset turnover and acid test or quick ratio. E. current ratio and acid test or quick ratio.

Q: A firm has a lower quick (or acid test) ratio than the industry average, which implies A. the firm has a lower P/E ratio than other firms in the industry. B. the firm is less likely to avoid insolvency in the short run than other firms in the industry. C. the firm may be more profitable than other firms in the industry. D. the firm has a lower P/E ratio than other firms in the industry, and the firm is less likely to avoid insolvency in the short run than other firms in the industry. E. the firm is less likely to avoid insolvency in the short run than other firms in the industry, and the firm may be more profitable than other firms in the industry.

Q: A firm has a higher quick (or acid test) ratio than the industry average, which implies A. the firm has a higher P/E ratio than other firms in the industry. B. the firm is more likely to avoid insolvency in the short run than other firms in the industry. C. the firm may be less profitable than other firms in the industry. D. the firm has a higher P/E ratio than other firms in the industry, and the firm is more likely to avoid insolvency in the short run than other firms in the industry. E. the firm is more likely to avoid insolvency in the short run than other firms in the industry, and the firm may be less profitable than other firms in the industry.

Q: Sure Tool Company is expected to pay a dividend of $2 in the upcoming year. The risk-free rate of return is 4%, and the expected return on the market portfolio is 14%. The beta of Sure Tool Company's stock is 1.25. If Sure's intrinsic value is $21.00 today, what must be its growth rate? A. 0.0% B. 10% C. 4% D. 6% E. 7%

Q: Sure Tool Company is expected to pay a dividend of $2 in the upcoming year. The risk-free rate of return is 4%, and the expected return on the market portfolio is 14%. Analysts expect the price of Sure Tool Company shares to be $22 a year from now. The beta of Sure Tool Company's stock is 1.25. What is the intrinsic value of Sure's stock today? A. $20.60 B. $20.00 C. $12.12 D. $22.00

Q: Sure Tool Company is expected to pay a dividend of $2 in the upcoming year. The risk-free rate of return is 4%, and the expected return on the market portfolio is 14%. Analysts expect the price of Sure Tool Company shares to be $22 a year from now. The beta of Sure Tool Company's stock is 1.25. The market's required rate of return on Sure's stock is A. 14.0%. B. 17.5%. C. 16.5%. D. 15.25%. E. None of the options are correct.

Q: The most popular approach to forecasting the overall stock market is to use A. the dividend multiplier. B. the aggregate return on assets. C. the historical ratio of book value to market value. D. the aggregate earnings multiplier. E. Tobin's Q.

Q: One of the problems with attempting to forecast stock market values is that A. there are no variables that seem to predict market return. B. the earnings multiplier approach can only be used at the firm level. C. the level of uncertainty surrounding the forecast will always be quite high. D. dividend-payout ratios are highly variable. E. None of the options are correct.

Q: Paper Express Company has a balance sheet which lists $85 million in assets, $40 million in liabilities, and $45 million in common shareholders'equity. It has 1,400,000 common shares outstanding. The replacement cost of the assets is $115 million. The market share price is $90. What is Paper Express's market value per share? A. $1.68 B. $2.60 C. $32.14 D. $60.71 E. None of the options are correct.

Q: Paper Express Company has a balance sheet which lists $85 million in assets, $40 million in liabilities, and $45 million in common shareholders'equity. It has 1,400,000 common shares outstanding. The replacement cost of the assets is $115 million. The market share price is $90. What is Paper Express's book value per share? A. $1.68 B. $2.60 C. $32.14 D. $60.71 E. None of the options are correct.

Q: You are considering acquiring a common stock that you would like to hold for one year. You expect to receive both $3.50 in dividends and $42 from the sale of the stock at the end of the year. The maximum price you would pay for the stock today is _____ if you wanted to earn a 10% return. A. $23.91 B. $24.11 C. $26.52 D. $27.50 E. None of the options are correct.

Q: You are considering acquiring a common stock that you would like to hold for one year. You expect to receive both $2.50 in dividends and $28 from the sale of the stock at the end of the year. The maximum price you would pay for the stock today is _____ if you wanted to earn a 15% return. A. $23.91 B. $24.11 C. $26.52 D. $27.50 E. None of the options are correct.

Q: You are considering acquiring a common stock that you would like to hold for one year. You expect to receive both $0.75 in dividends and $16 from the sale of the stock at the end of the year. The maximum price you would pay for the stock today is _____ if you wanted to earn a 12% return. A. $23.91 B. $14.96 C. $26.52 D. $27.50 E. None of the options are correct.

Q: You are considering acquiring a common stock that you would like to hold for one year. You expect to receive both $1.25 in dividends and $32 from the sale of the stock at the end of the year. The maximum price you would pay for the stock today is _____ if you wanted to earn a 10% return. A. $30.23 B. $24.11 C. $26.52 D. $27.50 E. None of the options are correct.

Q: A preferred stock will pay a dividend of $6.00 in the upcoming year and every year thereafter; i.e., dividends are not expected to grow. You require a return of 10% on this stock. Use the constant growth DDM to calculate the intrinsic value of this preferred stock. A. $0.60 B. $6.00 C. $600 D. $60.00 E. None of the options are correct.

Q: A preferred stock will pay a dividend of $7.50 in the upcoming year and every year thereafter; i.e., dividends are not expected to grow. You require a return of 10% on this stock. Use the constant growth DDM to calculate the intrinsic value of this preferred stock. A. $0.75 B. $7.50 C. $64.12 D. $56.25 E. None of the options are correct.

Q: A preferred stock will pay a dividend of $3.50 in the upcoming year and every year thereafter; i.e., dividends are not expected to grow. You require a return of 11% on this stock. Use the constant growth DDM to calculate the intrinsic value of this preferred stock. A. $0.39 B. $0.56 C. $31.82 D. $56.25

Q: A preferred stock will pay a dividend of $1.25 in the upcoming year and every year thereafter; i.e., dividends are not expected to grow. You require a return of 12% on this stock. Use the constant growth DDM to calculate the intrinsic value of this preferred stock. A. $11.56 B. $9.65 C. $11.82 D. $10.42

Q: A preferred stock will pay a dividend of $3.00 in the upcoming year and every year thereafter; i.e., dividends are not expected to grow. You require a return of 9% on this stock. Use the constant growth DDM to calculate the intrinsic value of this preferred stock. A. $33.33 B. $0.27 C. $31.82 D. $56.25

Q: A preferred stock will pay a dividend of $2.75 in the upcoming year and every year thereafter; i.e., dividends are not expected to grow. You require a return of 10% on this stock. Use the constant growth DDM to calculate the intrinsic value of this preferred stock. A. $0.275 B. $27.50 C. $31.82 D. $56.25

Q: Bubba Gumm Company has an expected ROE of 9%. The dividend growth rate will be _______ if the firm follows a policy of plowing back 10% of earnings. A. 90% B. 10% C. 9% D. 0.9%

Q: Think Tank Company has an expected ROE of 26%. The dividend growth rate will be _______ if the firm follows a policy of plowing back 90% of earnings. A. 2.6% B. 10% C. 23.4% D. 90%

Q: Xlink Company has an expected ROE of 15%. The dividend growth rate will be _______ if the firm follows a policy of plowing back 75% of earnings. A. 3.75% B. 11.25% C. 8.25% D. 15.0%

Q: Light Construction Machinery Company has an expected ROE of 11%. The dividend growth rate will be _______ if the firm follows a policy of paying 25% of earnings in the form of dividends. A. 3.0% B. 4.8% C. 8.25% D. 9.0%

Q: High Speed Company has an expected ROE of 15%. The dividend growth rate will be ________ if the firm follows a policy of paying 50% of earnings in the form of dividends. A. 3.0% B. 4.8% C. 7.5% D. 6.0%

Q: Medtronic Company has an expected ROE of 16%. The dividend growth rate will be ________ if the firm follows a policy of paying 70% of earnings in the form of dividends. A. 3.0% B. 6.0% C. 7.2% D. 4.8%

Q: Music Doctors Company has an expected ROE of 14%. The dividend growth rate will be ________ if the firm follows a policy of paying 60% of earnings in the form of dividends. A. 4.8% B. 5.6% C. 7.2% D. 6.0%

Q: Low Tech Company has an expected ROE of 10%. The dividend growth rate will be ________ if the firm follows a policy of paying 40% of earnings in the form of dividends. A. 6.0% B. 4.8% C. 7.2% D. 3.0%

Q: If the expected ROE on reinvested earnings is equal to k, the multistage DDM reduces to A. V0= (Expected dividend yield in year 1)/k. B. V0= (Expected EPS in year 1)/k. C. V0= (Treasury bond yield in year 1)/k. D. V0= (Market return in year 1)/k.